Home > REITs > Are REITs a Good Investment in Nigeria? Why You Should Invest in Them

Whether REITs (Real Estate Investment Trusts) are a good investment option really comes down to your:

• Financial goals: What you’re trying to achieve financially

• Risk tolerance: How much risk you're willing to take, and

• Time horizon: How long you plan to keep your money invested.

However, REITs have attractive features that make them a good investment. Some of these features include:

• Low entry cost

• Passive income

• Liquidity

• Diversification

• Inflation hedge.

Features of REITs that make them a good investment

1. Low entry cost

RIETs make getting into real estate investment super easy. Even if you don't have a lot of cash, you can still own a piece.

This means that new investors, students, and people saving smaller sums can start building their investment portfolios immediately.

Example:

If you can’t afford to own a whole shop, you can still earn from many shops owned by the same REIT. This is like owning a small slice of a shopping mall.

So, with REITs, you can buy just a few units or shares without breaking the bank.

2. Passive income

REITs are a good way to get regular dividends from rents.

This setup provides a reliable source of passive income for you and significantly boosts your personal income with minimal effort on your part.

The dividends are usually paid on a predictable schedule (e.g., quarterly or semi-annually). This ultimately gives you financial stability, and you can reinvest the money or use it to cover living expenses.

See: How to make money from REITS.

3. Liquidity (for publicly traded/listed REITs)

Publicly traded/listed REITs offer a high degree of liquidity.

This means you can quickly buy and sell your REIT units or shares (just like regular stocks) on the Nigerian Exchange (NGX) whenever you want. This makes it super easy to access your money if you need it, unlike selling a physical house or piece of land.

Note: You can buy and sell these shares through licensed, registered stockbrokers who act as intermediaries, connecting buyers and sellers.

See: How to buy and sell RIET shares on the stock market.

4. Diversification

Diversification is the foundation of a sound investment strategy.

In real estate, REITs are a way to diversify or spread your investments. This means you can allocate your money (capital) across various properties and even geographical locations.

Here are examples of properties and locations you can spread your money through REITs:

Properties:

• Residential: Single-family homes, apartments

• Commercial: Office buildings, retail spaces, warehouses

• Industrial: Factories, distribution centres

• Special-use: Hotels, hospitals, raw land

Geographic locations:

• Local neighbourhoods: Urban, suburban, rural

• Different cities within a country: Lagos, Abuja, Enugu

• Different countries or continents: Nigeria, Ghana, Kenya

Investing in REITs prevents you from putting all your eggs in one basket and significantly mitigates exposure to the risks inherent in any single investment.

So, if one basket of investment takes a hit (e.g., the market goes down, or a tenant moves out), it won't mess up your whole portfolio's returns as much.

See: Types of REITs to invest in.

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5. Inflation hedge

REITs are a great way for you to protect yourself against inflation.

This is simply because the foundational elements of real estate investment (rental income and property values) tend to rise along with the increasing general cost of living during inflation.

How REITs protect against inflation:

I. Rental income rises.

As inflation pushes up the cost of living, REITs can charge more money for rent. This increased income allows them to maintain or even grow their dividend payments.

In doing so, they ultimately preserve the purchasing power of their investors’ return.

II. Property values appreciate.

During inflation, as the cost of constructing new buildings and acquiring land increases, the value of existing, income-generating buildings tends to appreciate.

This means that the assets held by REITs (e.g., office buildings, retail centres, apartment complexes, or industrial warehouses) retain their real value and serve as a reliable store of wealth during inflation.

III. Investors directly benefit from the inflation hedge.

REITs are legally mandated to pay 90-95% of their taxable income to investors or shareholders every year. This means you get a quick benefit from the rising rent and the appreciating value of the assets.

In short, when inflation changes, the actual value of your income also changes directly. This is why REITs are good at protecting against inflation.

See: How to invest in REITs for beginners.

Bottom line

REITs are an easy and flexible way to invest in Nigerian real estate. They give you a regular income from rent payments (dividends) and a chance for the investment's value to grow (capital gains). However, potential risks include low market liquidity, regulatory changes, and Nigeria's unstable economy and currency. Whether a REIT is a good investment for you depends on the quality of its properties, its management, and your investment goals.

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